This question asks you to calculate the welfare effects of an export tax in the small country case.
Graph the following curves by clicking here
Label the vertical axis “P” and the horizontal axis “Q.”
Draw a demand curve, labeling it “D.”
Draw a supply curve, labeling it “S.”
Suppose this country is an exporter of this product, and the current international price is $900. Draw a horizontal line representing this price.
Suppose the quantities supplied and demanded at this price are 80,000 and 20,000 respectively. Mark these quantities on the horizontal axis.
Now suppose this country imposes an export tax that causes the domestic price to fall to $800. Draw another horizontal line representing this price.
Suppose the quantities supplied and demanded at this price are 60,000 and 40,000 respectively. Mark these quantities on the horizontal axis.
Calculate the gain in consumer surplus.
Calculate the loss in producer surplus.
Calculate the gain in government revenue?
Calculate deadweight loss.
Can a small country increase its total welfare by imposing an export tax? Explain.
This question asks you to calculate the welfare effects of an import tariff in the small country case.
Graph the following curves by clicking here
Label the vertical axis “P” and the horizontal axis “Q.”
Draw a demand curve, labeling it “D.”
Draw a supply curve, labeling it “S.”
Suppose this country is an importer of this product, and the current international price is $50. Draw a horizontal line representing this price and label it “P1.”
Suppose the domestic quantities supplied and demanded at this price are 130 and 260 respectively. Mark these quantities on the horizontal axis.
Now suppose this country imposes an import tariff that causes the domestic price to rise by 10%. Draw another horizontal line representing this price and label it “P2.”
Suppose the quantities supplied and demanded at this price are 200 and 250, respectively. Mark these quantities on the horizontal axis.
Calculate the loss in consumer surplus.
Calculate the gain in producer surplus.
Calculate the gain in government revenue.
Calculate deadweight loss.
Can a small country increase its total welfare by imposing an import tariff? Explain.
Country I imports emery boards and exports exfoliants. Country II imports exfoliants and exports emery boards.
Graph the following curves by clicking here
Graph these two country’s offer curves, placing emery boards on the vertical axis and exfoliants on the horizontal axis.
Draw a line the slope of which represents the equilibrium relative price of exfoliants in terms of emery boards and label it (Px/Py)1. Which country’s terms of trade does the slope of this line represent?
If the terms of trade are (Px/Py)1, what quantities of exfoliants and emery boards will be traded? Mark these quantities X1 and Y1 respectively.
Suppose that the government of Country II persuades Country I to voluntarily limit its exports of exfoliants. How will this change your graph?
What does your offer curve analysis lead you to expect will happen to Country II’s terms of trade?
What does your offer curve analysis lead you to expect will happen to Country II’s volume of trade?
